Britain and the Caribbean: A legal battle loomimg?

Friday 25 March 2011

The British Chancellor of the Exchequer, George Osborne, certainly disappointed Caribbean governments when, in the Budget he delivered on March 23, he retained the level of Air Passenger Duty (APD) applied to persons travelling to the Caribbean from British airports.

In maintaining the level of the APD, applied to Caribbean countries since November 2009, Osborne may have left Caribbean governments with no option but to take legal action against the British government on the basis of discrimination and of violation of existing legal agreements.

It would be a great shame if the matter of the APD between Britain and the Caribbean ended up in a legal wrangle. But, to their credit Caribbean governments and tourism organisations, with the support of British Tour Operators who market the Caribbean as a destination for British visitors, have talked to, and lobbied, every British government office that would listen in an effort to get the APD considerably reduced. Further, the British-Caribbean parliamentary group, led by the Jamaican-born Member of Parliament, Dianne Abbot, has raised its voice quite strongly with British government ministers.

But, these efforts have proven to be of no avail.

Osborne not only did not reduce the APD for the Caribbean, he indicated that raising all bands in the APD had been deferred until next year. In other words, what he gave was a freeze on the current level of the APD and a very clear intention to raise it next year. That is no comfort to the Caribbean, and every cause for moving their actions beyond words. In announcing the freeze on the APD, Osborne was making a gesture to his own middle-class constituency in Britain who are under severe pressure of heavy taxation. Annual holidays that they have been accustomed to taking, are adversely affected by higher costs of air fares, and they regard the APD as yet another tax deduction from their already diminished take-home pay.

So, Osborne’s decision was no signal that he had accepted the Caribbean governments’ argument that the APD has had a harmful effect on their tourism in a discriminatory fashion. His action in freezing the current levels of the APD was entirely for political purposes at home.

All this should make the meeting of the UK-Caribbean Forum of Foreign Ministers an interesting event when it is held later this year in the Caribbean. One would expect that Caribbean Foreign Ministers will be prepared at that meeting to express their strong disappointment to whichever British Ministers turn up at the Forum from the Foreign and Commonwealth office or any other ministry, and to indicate that they might be forced to explore other options such as a legal challenge to the high APD band in which the Caribbean has been placed. And, if satisfying assurances are not offered at the level of Foreign Ministers, then it would be reasonable for Caribbean leaders to raise the matter with British Prime Minister David Cameron when they hold their traditional summit in the margins of the Commonwealth Heads of Government meeting in Australia in October this year.

At the root of this problem is that all Caribbean countries have been put into Band C of the APD, which, even though it has been touted as an environmental tax, is really nothing more than a revenue measure for the British Treasury. For a long time the British bureaucracy had held the view that the aviation industry is under-taxed with no value added tax on tickets or duty on aviation fuel. The bureaucracy has found convenient support for this view from environmental groups who argue that “polluters should pay”.

The point is that the British government decided to apply the APD to all flights departing from UK airports. Four bands were created from A to D, with A being the cheapest and D the most expensive. All Caribbean countries were placed in Band C, even though the journeys from Britain were much shorter than journeys to parts of some countries placed in Band B.

Consequently, the APD applied to passengers travelling from London to as far away as California in the United States is smaller than the APD payable by passengers to Caribbean countries which are closer.

The reason for this is that the principle of measurement for application of the APD is from the capital of one country to the capital of another. Hence, journeys from London to California are measured from London to Washington only, and not the full distance.

Rightly, Caribbean governments have argued that the APD applied to passengers travelling to their countries is both unfair and discriminatory, adversely affecting their tourism trade from the UK, and battering the tourism industry on which many of their economies rely for a big chunk of their revenues and employment for their people.

The closest thing to comfort that they got from Osborne’s budget speech was the statement: “In the meantime, we are consulting today on how to improve the existing and rather arbitrary bands that appear to believe that the Caribbean is further away than California”. Well, surely if he recognized that the bands are “arbitrary” and that the Caribbean is not further away than California, Osborne should have corrected the situation. In not doing so, he said: “We hoped we could replace the per passenger tax with a per plane tax. We have tried every possible option, but have reluctantly had to accept that all are currently illegal under international law”.

It is more than likely that, in the application of the APD and its discriminatory nature against the Caribbean, the British government may have acted contrary to Article 75 of the Economic Partnership Agreement (EPA) signed between the European Union (including Britain) and the individual Caribbean countries, and violated commitments under the General Agreement on Trade in Services - a treaty of the World Trade Organization.

It would be costly to the Caribbean countries acting collectively and to Britain if the APD now has to become a matter of international litigation, but unless there is modification by the British government, Caribbean governments and tourism organizations may have no choice but to consider it.